AP Group Limited v Commissioner of Taxation

Facts 12 The primary facts were not in dispute before the Tribunal. At [12]-[15] the Tribunal recorded that: 12. The Applicant does not acquire motor vehicles direct from the manufacturer. Instead, it acquires them under bailment arrangements, by which the Applicant, on behalf of an independent finance company, orders new vehicles from the manufacturer. The vehicles are sold by the manufacturer to the finance company but they are shipped direct to the dealership to be used as trading stock. 13. The finance company owns the vehicles until the Applicant finds a customer for the vehicle. Immediately prior to the sale of the vehicle to the Applicant's customer, title in the vehicle passes from the finance company to the Applicant. In this way, the Applicant is able to pass on good title in the vehicle. 14. These arrangements apply to all new vehicles, whether purchased by the Applicant for its floor stock or purchased to meet a specific customer order. During the bailment period the finance company charges bailment fees to the Applicant for the right to display the goods for sale. These charges are treated as consideration for taxable supplies made by the finance company to the Applicant. 15. We were told that arrangements of this kind are very common in the motor vehicle industry. They are sometimes referred to as "floor plan" arrangements. 13 After identifying the relevant provisions of the Toyota dealership agreement (at [17]-[21]), the Tribunal described the Toyota "fleet rebates" at [22]-[28] and the Toyota "run-out model support" payments at [29]-[38]. 14 In summary, insofar as the "fleet rebates" are concerned, Toyota requires sales of fleets of cars at a price below that paid by ordinary retail customers. For each class, fleet and non-fleet, Toyota sets a maximum that the dealer can charge. Within the fleet class there are sub-classes designated platinum, gold and silver which have different maximum prices, each representing a discount from the maximum price that the dealer could seek that a private customer pay for the same car. Sometimes Toyota and the dealer know in advance that cars are required for fleet purposes, by negotiation either with Toyota or the dealer, in which event Toyota will reduce the wholesale price at which it sells the car to the dealer to reflect the appropriate fleet discount. Other times a fleet customer's order will be satisfied either in whole or in part from the dealer's floor-stock. If the car sold to the fleet customer was purchased from Toyota for sale to a private customer the dealer will have paid more for that car than it would have paid for the same car for a fleet customer. Toyota pays the dealer an amount representing the difference, called a "fleet rebate", in these circumstances provided the conditions of the "fleet rebate" are satisfied which include that the dealer pass on to the fleet customer the full extent of the Toyota payment as a discount to the price. 15 Insofar as the "run-out model support" payments are concerned, Toyota would periodically operate programs intended to reduce a dealer's floor stock of models of cars that were scheduled to be replaced by a new model. If a dealer complied with the conditions of the program (basically, sale of the car during the relevant period on terms no less advantageous to the customer than the terms Toyota proposed), the dealer would be paid a sum of money by reference to each car of the relevant description (the run-out stock) sold. There was no requirement that the dealer pass on any discount to the customer related to the "run-out model support" payment the dealer would receive from Toyota on the sale. 16 After identifying the relevant provisions of the Ford dealership agreement (at [46]-[48], the Tribunal described the Ford "retail target incentive" payments at [49]-[60]. The Tribunal also described the relevant provisions of the Subaru dealership agreement at [61]-[64] and the Subaru "wholesale target incentive" payments at [65]-[73]. 17 Insofar as the Ford "retail target incentive" payments are concerned, Ford agreed with its dealers to pay certain sums of money to dealers which achieved monthly and quarterly sales targets that Ford set based on the dealer's size and past performance. Targets were based on the number of cars sold to eligible customers in the qualifying period, not the value of the cars sold. Once a car was sold and delivered to an eligible customer the details would be entered into the vehicle information system and, in about the middle of the following month, based on the information so entered Ford would issue the dealer with a tax invoice for the incentive payment plus 10% GST and shortly thereafter pay that amount to the dealer. 18 Insofar as the Subaru "wholesale target incentive" payments are concerned, Subaru agreed with its dealers to pay certain sums of money based on the dealer ordering cars from Subaru in accordance with certain minimum and maximum parameters for qualifying periods set by Subaru. A dealer who placed orders not exceeding the maximum and not less than the minimum (set at 70%) for a qualifying period would receive a payment from Subaru in the month following the month in which each vehicle was ordered in the band of above 70% and not exceeding 100%. The payment was a flat rate of 1.5% of the dealer invoice price for each eligible vehicle ordered. Payments did not depend on any sale to a customer by the dealer. 19 Each of the programs described above incorporated the capacity for some form of audit arrangement by the manufacturer to ensure dealers were entitled to the payments being made. 20 In its capacity as a dealer the AP Group participated in and received payments pursuant to each of the arrangements described above, which the Commissioner decided incurred liability for GST.

Reasoning of the Tribunal 21 The Tribunal decided that none of the payments involved a supply for consideration by the dealer, the AP Group, to the manufacturers, Toyota, Ford and Subaru. According to the Tribunal (at [81]) to adopt this conclusion would involve "an air of unreality", as: [o]ne could just as readily conclude that a retailer makes a supply to its wholesaler by taking on an obligation to pay for the goods it purchases, or that the wholesaler makes a supply not only of its goods, but also of the promise to deliver those goods in a timely fashion. 22 The Tribunal continued at [85] to this effect: In the context of the overall business relationships and contractual arrangements between the Applicant on the one hand, and the various manufacturers on the other, we do not think that the Applicant's acceptance of the obligations or the making of the promises is properly viewed as the making of supplies to the manufacturers. Instead, they are part of the foundation underpinning the relationships, the background to the bargain the parties have made - in a sense, the rulebook by which the game is to be played. 23 The Tribunal also concluded that, if it were wrong in this regard, any such supplies to the manufacturers were not taxable supplies as (at [86]): payments are not made "for", or even "in connection with", any such supplies. There is no nexus between the payment of the incentives and the making of the promises, the performance of the obligations, or the compliance with the manufacturers' various rules and policies. The Commissioner's submissions do not grapple with the indisputable truth that, on his argument, the [AP Group] always carries on its business in a particular way (as it has agreed with the manufacturers to do), but it only gets paid for doing so in circumstances which warrant the payment of an incentive; otherwise the supply is provided for free. We do not see how that can possibly be so. 24 The Tribunal (at [88]) did not accept the Commissioner's submissions by way of analogy to the circumstances in Commissioner of Taxation v Secretary to the Department of Transport (Victoria) Inc [2010] FCAFC 84; (2010) 188 FCR 167 (Department of Transport). In that case, which involved a payment by way of a subsidy by the Department to taxi-cab operators for a proportion of each fare payable by an eligible disabled person, the Full Court of the Federal Court held that there were two supplies for consideration, one by the taxi-cab operator to the passenger and one by the taxi-cab operator to the Department. When applied to the facts of the present case, the Tribunal at [88] said the analogy broke down as that would mean: the supply of a vehicle to the [AP Group's] retail customer is at the same time the supply, by the [AP Group] to the manufacturer, of the service of supplying the vehicle to the customer. It is difficult, with respect, to imagine a more tortured analysis of what is a fundamentally simple transaction, a sale of goods. 25 The Tribunal decided that the Toyota "fleet rebates" and the Toyota "run-out model support" payments but not the Ford "retail target incentive" payments were consideration for the supply of a vehicle by the AP Group to its retail customers (at [90]-[108]). The Commissioner did not make this argument in respect of the Subaru "wholesale target incentive" payments. The Tribunal did not accept the argument of the AP Group that the Commissioner could not "succeed in his argument that the payments are consideration for supplies that the [AP Group] makes, unless he first disengages the payments from their status as rebates, seemingly because, unless he does that, he cannot establish the necessary nexus between the payments and the supplies, and without the nexus, the payments cannot be consideration" (at [92]). The Tribunal (at [93]) referred to the reasoning in Commissioner of Taxation v Reliance Carpet Co Pty Ltd [2008] HCA 22; (2008) 236 CLR 342 (Reliance) at 352 where Gleeson CJ, Gummow, Heydon, Crennan and Kiefel JJ said: The circumstance that the deposit forfeited to the taxpayer had various characteristics does not mean that the taxpayer may fix upon such one or more of these characteristics as it selects to demonstrate that there was no taxable supply. It is sufficient for the Commissioner's case that the presence of one or more of these characteristics satisfies the criterion of "consideration" for the application of the GST provisions respecting a "taxable supply". 26 At [94] the Tribunal dealt with the evidence of Margaret Knowles, a group fleet manager within the AP Group, in which the Toyota "fleet rebates" were described as "a discount to the purchase price paid" by the AP Group to Toyota. According to the Tribunal (also at [94]): the characterisation, even if it is correct, cannot be determinative of the issue before us. This is because the question for us is not "is the payment a discount?" but rather "is the payment consideration?" An answer to the first question, one way or the other, provides no clue to the way the second question might be answered. To which it might be added, the characterisation of the Toyota fleet rebate as a "discount to the purchase price paid" is incorrect because a discount is not a payment; it is a reduction or deduction. 27 After referring to TT-Line Company Pty Ltd v Commissioner of Taxation [2009] FCAFC 178; 181 FCR 400 (at [95]-[97]) (TT-Line), the Tribunal (at [99]) rejected as immaterial each of the different features in the present case which the AP Group identified, namely: • in TT-Line, the customer, not the ferry operator, was entitled to the rebate, whereas here it is the [AP Group] who receives the payment; • the [AP Group's] customers, unlike the passenger in TT-Line, are "rarely" or "never" aware of the amount of the payment made to the [AP Group]; and • the passenger in TT-Line had the option of paying the full price for the travel and claiming the rebate from the government, but the [AP Group's] customer has no corresponding option. 28 The Tribunal agreed with the Commissioner's submission that the retail customer's lack of awareness of the whole consideration paid for the supply was immaterial, referring to s 9-15 of the GST Act (at [100]-[101]). 29 The Tribunal concluded in these terms at [102]-[105] in respect of the Toyota "fleet rebates" and the Toyota "run-out model support" payments: 102. The question is simply whether the payment is "in connection with" the supply of the vehicle to the customer. In American Express International Inc v Commissioner of Taxation [2009] FCA 683; (2009) 73 ATR 173 [Amex], Emmett J said at [55]: The phrase in connection with signifies, in its broadest sense, any relationship between two subject matters, no matter how remote. The phrase is capable of describing a spectrum of relationships ranging from the direct and immediate to the tenuous and remote ... 103. However, that is not to say that, in the context of s9-15 of the GST Act, a "tenuous" or "remote" connection with a supply will be enough to constitute consideration. 104. But here we are not dealing with a connection of that nature. Rather, the fleet rebate paid by Toyota has a direct and immediate connection with the supply of a vehicle to a fleet customer. That is because the supply of the vehicle is the very act that triggers the payment of the rebate. Put simply, the consideration that the Applicant received for the supply of a vehicle to a fleet customer comprised two components - the first component is the amount paid by the customer, and the second component is the amount received from Toyota as the "fleet rebate". Both components were paid for that supply, and together they form the consideration for the supply. In that respect, the fleet rebate arrangement is no different from Edmonds J's description of the arrangement in the TT-Line case, at [50], as referred to above. One need simply substitute "manufacturer" for "Commonwealth", "vehicle" for "transport services" and "customer" for "Mr Egan" to see that this is so. GST is accordingly payable on the fleet rebate. 105. Similarly, and for the same reason, the run-out support payment has a direct and immediate connection with the supply of the run-out vehicle to the customer. It is part of the consideration for the supply of the vehicle to the customer, and it is subject to GST. 30 The Tribunal reached a different view about the Ford "retail target incentive" payments. It reasoned as follows at [106]-[108]: 106. The last remaining payment type is Ford's retail target incentive payment. It is clear from the "Drive for Success" program that the payment is triggered at the time, and by reason, of the Applicant's recording of a level of new sales for a relevant period of eligible vehicles to eligible customers in excess of a specified target set by Ford. Significantly, though, and unlike the fleet rebates and the run-out model support payments, the target incentive payment has no nexus with any one particular supply. It is a payment made in connection with supplies generally, or perhaps more accurately, it is a payment made in connection with the making of supplies generally. 107. The use of the word "supply", in the singular, in section 9-15 (and also in the s 195-1 definition of "consideration") implies that the payment must relate to a supply rather than to supplies in general, or the making of supplies in general. That focus on the singular is found throughout Division 9 - where, although the headings to particular sections (including s 9-5, s 9-25 and each of its subsections, s 9-30, s 9-40, s 9-70, s 9-75, s 9-80 and s 9-85) are in the plural, the text is in the singular. The relevant provisions are directed towards the identification of a supply, and the consideration for it. The identification of global amounts is part of a different enquiry: see, for example, the provisions relating to "net amounts" in Division 17. 108. In our view, the retail target incentive payment is not a payment "in connection with" a supply, and so it is not consideration. This conclusion is not affected by s 23 of the Acts Interpretation Act 1901 ("... unless the contrary intention appears ... words in the singular number include the plural ...") because, in our view, it is a deliberate drafting technique which demonstrates a contrary intention.

DISCUSSION 31 There was an issue between the parties about the proper construction of s 9-5(a) of the GST Act which prescribes the relevant condition for the making of a taxable supply ("you make the supply for consideration"). The AP Group contended that the Tribunal had overlooked the significance of the word "for" in s 9-5(a) and thus, instead of asking itself whether any supply was made for consideration, asked itself only whether a payment the payment was "in connection with" any supply. The Commissioner submitted that the word "for" has no work to do when s 9-5(a) is considered with the definitions of "supply" and "consideration" so that the Tribunal had asked and answered the correct question. The Commissioner also submitted that, in any event, the Tribunal had not overlooked the significance of the word "for" in s 9-5(a). 32 The Commissioner's approach to the issue of construction substitutes the definitions of "supply" and "consideration" for the statutory condition which is specified in s 9-5(a). Although the Commissioner said this approach was a result of the literal meaning of the definition, this is not so. Section 9-5(a) specifies as a condition of a taxable supply the requirement that "you make the supply for consideration". The definitions of "supply" and "consideration", even if read literally as part of that requirement, do not result in the omission of the word "for". If the definitions are inserted in substitution for the defined terms where they appear in s 9-5(a) the result is: you make [any form of supply whatsoever] for [any consideration, within the meaning given by sections 9-15 and 9-17 in connection with the supply or acquisition]. 33 Sections 9-15 and 9-17 identify circumstances which are included within the meaning of consideration including, relevantly in s 9-15(1)(a), "any payment, or any act or forbearance, in connection with a supply of anything". Even if these words are substituted for "consideration" the result is simply repetition of the "in connection with" element of the statutory condition, not omission of the word "for". The consideration must be "in connection with" the supply but the supply must also be "for" the consideration. "For", in this context, means "in order to obtain" (Macquarie Dictionary Online, item 3, Oxford Dictionary Online item 9(a)). The word "for" thus functions in the statutory description to identify the character of the connection which is required. It ensures that not every connection between the giving of consideration and the provision satisfy the first condition of making a taxable supply. If it were otherwise, any form of connection of any character between the making of a supply and the payment of consideration would suffice. The decisions on which the Commissioner relied to support this proposition, on analysis, do not do so. 34 It is true that the relevant question has been expressed in terms of connection in numerous decisions, including those to which the Commissioner referred (Reliance at [33], TT-Line at [15] and [18], Department of Transport at [67] and Amex at [67]). But in no case did the analysis begin and end with that question. In each case the nature and extent of the connection was also analysed to ascertain whether the supply was made for the consideration. 35 Contrary to the submission of the AP Group the Tribunal did not take a different approach in the present case. After posing the question in terms of the connection between the supply and consideration at [102], the Tribunal at [103] described types of connections which would be insufficient in the context of s 9-15, being a "tenuous" or "remote" connection. It is apparent that the context set by s 9-15 is that the supply must be made for the consideration (s 9-5), albeit that the consideration need not be given by the recipient of the supply (s 9-15(2)). This is confirmed at [104]. The Tribunal describes the connection between the fleet rebate payments as "direct and immediate" so that, in substance, the AP Group received two components of consideration for the supply of a car to a customer, the payment from the customer (the recipient of the supply) and a payment, the fleet rebate, from the manufacturer Toyota. Despite referring to the supply as the "trigger" for the payment of the fleet rebate, it is clear from [103] and [104] read together that the Tribunal is not suggesting that a mere temporal trigger would suffice. The connection the Tribunal describes at [104] is not a connection of that character. Accordingly, the AP Group's submission that the Tribunal was satisfied that s 9-5 was engaged merely because but for the sale to a retail customer the payments would not have been made, being the application of an insufficient test, cannot be accepted. The terms of [103] and [104] are inconsistent with the Tribunal having applied any form of "but for" test and no more. 36 The Tribunal's analysis of the question whether any of the payments involved a supply for consideration to the manufacturers also exposes the fact that the Tribunal recognised that the issue was whether there were supplies for consideration. The Tribunal said so in terms at [79] noting that if there was any supply to the manufacturers by the AP Group the next question was whether any of the "incentive payments" were "consideration for such a supply". At [84] the Tribunal also expressly rejected any approach based on mere connection of any nature, accepting the AP Group's submission that this would create chaos. Putting the issue beyond doubt, the Tribunal at [86] said that the incentive payments are not "made "for", or even "in connection with" any such supplies". The notion that the Tribunal explicitly recognised that "in connection with", in isolation, was insufficient because of the "for" requirement at [86], yet forgot about that requirement some 15 paragraphs later is unpersuasive. The AP Group's submission that the Tribunal approached the issues inconsistently is simply not borne out by the Tribunal's reasons. 37 It follows that to the extent that the AP Group's appeal relied on the notion that the Tribunal misconstrued s 9-5 by overlooking the requirement that the supply be for consideration there cannot be said to be any question of law which arises on the Tribunal's decision. This does not mean that the questions identified as questions of law do not arise, but it has the consequence that none of the questions involve the Tribunal's construction of s 9-5 of the GST Act. The Tribunal's construction of s 9-5 was orthodox and did not involve error. The problem with the questions of law said to arise in the notices of appeal and cross-appeal are that each embraces potential questions of fact and law. By not identifying questions of law which, if answered in a particular way are capable of vitiating the Tribunal's decision, the parties (no doubt inadvertently) have failed to identify the proper jurisdictional foundation of the appeal and cross-appeal. It is important for this to be noted because the inadvertence of the parties cannot be permitted to divert the Court's focus from the nature of the jurisdiction which it is exercising, which is founded on the existence and articulation of questions of law material to the decision which the Tribunal made. Once the argument that the Tribunal overlooked the significance of the word "for" in s 9-5 is dismissed (as it has been), it is apparent that the AP Group's case in the appeal is that the facts which the Tribunal found (and which are not in dispute) are incapable of satisfying the requirements of s 9-5 and/or that the Tribunal failed to consider relevant matters. If not understood in this way, it is difficult to see how the questions posed in the appeal might be questions of law. The Commissioner's case in the cross-appeal is that the Tribunal misunderstood and thus failed to deal with the Commissioner's case as put to it and, in so doing, failed to consider relevant matters. Although not framed as such in the notice of cross-appeal these were the questions the Commissioner identified in submissions and they are undoubtedly questions of law. 38 Leaving aside the submission about the Tribunal misconstruing s 9-5 which has been rejected above, the AP Group's case on the Toyota "fleet rebates" and Toyota "run-out model support" payments is that the facts found necessarily led to the conclusion that there was no supply by the AP Group of any car to a customer for consideration in the form of the "fleet rebates" and "run-out model support" payments. While the "fleet rebates" and "run-out model support" payments became payable on the supply of certain cars to certain retail customers in accordance with the conditions of those arrangements between the AP Group and Toyota, those payments were to reduce the price (or consideration) the AP Group paid to Toyota for the wholesale supply of the car by Toyota to the AP Group. The payments were not "for" and thus not "in connection with" in the requisite sense the retail sale of the car by the AP Group to a customer. As the AP Group put it, those payments could not constitute consideration at the stage of the distribution chain subsequent to the wholesale sale by Toyota to the AP Group, being the retail sale by the AP Group to a customer. 39 The AP Group submitted that its case could be tested in this way. Assume a fleet customer negotiates the purchase of 100 cars from a dealer either directly with Toyota or with the dealer. The dealer has 95 cars available in its floor-stock which it has purchased from Toyota at the discounted fleet price. It has five cars in its floor-stock which it has purchased at a price which does not include the fleet discount. For the 95 cars no payment of a fleet rebate by Toyota to the dealer is triggered. For the five non-fleet cars which the dealer sells to the fleet customer, the fleet rebate is triggered. As between the dealer and the fleet customer there is no difference in price. The price is always the discounted fleet price. There is no additional consideration which must come from Toyota. The terms of the deal between the dealer and the fleet customer are the terms of sale as between them and no more. As between the dealer and Toyota there is also no difference in price as between the 95 cars and the five cars. The fleet rebate is to ensure that there is no difference. There is no payment by Toyota to the dealer for the 95 cars and thus no possible taxable supply because the discounted fleet price has been taken into account in the price paid by the dealer to Toyota from the outset. There is only a payment by Toyota to the dealer for the five cars because Toyota needs to rebate the fleet discount to the dealer to ensure equivalence between the price of wholesale distribution of cars sold to fleet customers. The fleet rebate thus functions purely at the wholesale level. It is triggered by the dealer selling a non-fleet car to a fleet customer but the supply to the fleet customer is not "for" the consideration of the fleet rebate and thus is not relevantly in connection with that supply. Just as the Tribunal rightly rejected the notion that the dealer supplied Toyota with the service of selling cars to the dealer's customers so too it ought to have rejected the notion that there is a service of selling a non-fleet car to a fleet customer. The only transaction which involved a supply for the consideration of the fleet rebate was the initial wholesale of a non-fleet car by Toyota to the dealer. 40 The Commissioner submitted that the appropriate focus was the sale of the particular car. Where the dealer has purchased a non-fleet car from Toyota it is the sale of that car to a fleet customer which triggers the rebate. The trigger is not merely temporal; it is substantive. Because the fleet customer is always entitled to the relevant fleet discount (which varies depending on the fleet customer's status) the fleet rebate is a necessary part of the dealer's willingness to supply that car to that customer. The fact that the customer does not know of the payment from Toyota to the dealer is immaterial. So too is the fact that the fleet/non-fleet arrangements are internal to the wholesale arrangements between Toyota and the dealer. For that sale to occur, the consideration includes both the amount the customer pays and the fleet rebate from Toyota. The fleet rebate is thus "for" and in connection with the supply of the car to the customer. 41 This issue is not easy to resolve. The competing approaches reflect the different focus of the AP Group and the Commissioner. It is apparent that the submissions of the AP Group concern the overall relationship between the dealer and the manufacturer. At this level of generality the fleet rebates are part and parcel of what the AP Group described as the "wider rules of engagement" between the dealer and the manufacturer. The submissions of the Commissioner concern the specific transaction between the dealer and the fleet customer in respect of which the fleet rebate is payable. At this level of particularity the fleet rebate payment is for the supply of a non-fleet car to a fleet customer. 42 The submissions of the AP Group that all aspects of the arrangements between the dealer, the manufacturer and the customer had to be considered should be accepted: SAGA Holidays Ltd v Commissioner of Taxation (2005) 149 FCR 41; [2005] FCA 1892 at [78] To this extent if the Tribunal's statement at [98] that certain factors did not matter can be construed as a failure to consider those matters, we would agree that the Tribunal erred. It is apparent, however, that the Tribunal was in fact taking into account those matters but determining that in all of the circumstances of the case they did not carry weight. Nor can the way in which the Tribunal approached Ms Knowles' evidence at [94] be said to involve error. It must be correct that the dealer's characterisation of the payment cannot be determinative. Despite the apparent persuasiveness of the AP group's analysis of the wholesale and retail arrangements, if there is error of law in the Tribunal's reasoning it is very hard to pin down. That said, GST is either payable in accordance with the statute or it is not. 43 Ultimately, selection of the appropriate level of generality or particularity at which the assessment is to be carried out is fact-dependent. The critical facts include the nature of the supply said to be involved. This flows from s 9-5 which is concerned with each supply. On the facts of the present case, where there is no doubt that the sale by the dealer of a car to a customer (specifically, the sale of a non-fleet car to a fleet customer) causes or is the trigger for the making of a payment by Toyota to the dealer, it is necessary in terms of the statute to ask whether the dealer made that particular supply for consideration. The appropriate level for the assessment is the particular supply of the car in question by the dealer and the payment which that supply triggers. The price paid by the customer is clearly consideration for the supply. But so too is the fleet rebate paid by Toyota to the dealer. The factors on which the AP Group relied to avoid this result are not as persuasive as those which point to it. 44 First, and contrary to the AP Group's submission about the Tribunal treating the payments inconsistently, the supply in this case need not be characterised as the supply of a service by the dealer to Toyota, being the service of supplying a non-fleet car to a fleet customer. The supply is the supply of the car by the dealer to the customer. It is the consideration for that supply which involves two elements. Second, and consistently with s 9-15(2) of the GST Act it does not matter that the payment was by Toyota rather than by the recipient of the supply, in this case, the fleet customer. Third, the GST Act directs attention to the particular supply. For a fleet customer to purchase a non-fleet car two things have to happen. The customer must negotiate a price with the dealer (or Toyota) which will include the fleet discount. Toyota must pay to the dealer the fleet rebate. Fourth, the lack of knowledge of the fleet customer of the arrangements between Toyota and the dealer is one factor only but cannot be determinative on the facts overall. Fifth, the internal characterisation of the payment as a rebate for the wholesale transaction is also not determinative. Sixth (and in contrast to the "run-out model support" payments) the amount of the fleet rebate had to be given by the dealer by way of discount to the fleet customer. Finally, the critical difference between the 95 cars and the five cars in the example posed by the AP Group is that a payment by Toyota is required to be made for the five cars if, and only if, each is sold to a fleet customer. No equivalent payment is made for the 95 cars for the reason that the dealer has paid the discounted wholesale price for those cars. Further, no payment is made for any of the five cars which are sold to a non-fleet customer. What this last fact exposes is that it is the supply of the particular car (purchased for non-fleet purposes) to a particular customer (a fleet customer) which gives rise to the obligation for Toyota to pay the fleet rebate. The payment is for and in connection with that supply. 45 For these reasons we do not accept that the Tribunal erred in its conclusion that the Toyota "fleet rebates" involved the making of a taxable supply. 46 The same analysis applies to the Toyota "run-out model support" payments. Again, for each car sold in accordance with one of the periodic "run-out" programs Toyota conducted, Toyota would make a payment to the dealer. The appropriate level of assessment is thus the sale of the particular car which triggers the payment. As noted, there was no requirement that the dealer pass on any particular discount to the customer. In this sense, as the AP Group submitted, the "run-out model support" payments functioned to give the dealer greater room to negotiate to shift old stock. But this function in the overall arrangements between the dealer and Toyota does not alter the fact that, in respect of the particular supply, the dealer would receive consideration from two sources, both the customer and Toyota. 47 The absurd consequences which the AP Group said would flow from these conclusions are also not persuasive. Disclosure to customers of the "fleet rebate" and "run-out model support" payments is not an onerous requirement, if it truly be required. The concern that these are confidential between the dealer and Toyota is not founded on the evidence. The concern that disclosure might force a change in the way business is conducted is speculative whether that be because of an inability to claim input tax credits or possible ramifications for the luxury car tax or otherwise. An invoice showing the GST on the amount the customer paid excluding the rebate also does not seem to require "significant explanation" if the additional payments by Toyota are disclosed. It is not the case that every up-front discount on the wholesale price automatically involves providing consideration for a supply to a customer. An up-front discount is different in form and substance from a subsequent rebate because a car purchased for non-fleet purposes has to be sold to fleet customer. 48 This analysis also suggests why the Tribunal did not err in rejecting the Commissioner's contentions that the Toyota "fleet rebates" and "run-out model support" payments involved supplies by the dealer to Toyota for consideration and the Ford "retail target incentive" payments and the Subaru "wholesale target incentive" payments involved supplies by the dealer to each of Ford and Subaru respectively for consideration. The resolution of the issues again turns on the selection of the appropriate level of generality or particularity with which the acts said to constitute supplies are to be considered. In contrast to the "fleet rebates" and "run-out model support" payments none of these other payments are triggered by the sale of a particular car. The payments are part of wider programs in which dealers would have a strong incentive to participate but which do not depend on the sale of any particular car in any particular way. The conduct which the payments act to encourage is conduct relating to the overall management of the business enterprise comprised in the dealership, including sound ordering practices and clearance of old stock to make way for new stock, to the presumed mutual benefit of the dealer and the manufacturer. This indicates that the required focus is the overall relationship between the dealer and the manufacturer. Whether there are supplies for consideration is to be assessed in that context - which is precisely what the Tribunal did. 49 Although the Commissioner characterised the cross-appeal as one in which the Tribunal failed to deal with the case the Commissioner in fact put, and thus failed to consider relevant matters, the Tribunal's reasons as a whole disclose that it was aware of both the arrangements between the dealers and the manufacturers as a whole and the Commissioner's arguments. Although the Tribunal expressed its conclusions in terms of the "rulebook by which the game is to be played" at [85] it is apparent that the Tribunal well understood that the Commissioner was relying on the particular obligations which the dealers accepted in support of the contentions. So much is plain from the reference at [86], albeit in short form, to the various promises and obligations set by the manufacturers' rules and policies. The Tribunal's real point was that these arrangements reflect the overall relationship between the dealer and the manufacturer which always exists and that there is no supply of a service to the manufacturer by the dealer simply complying with those overall arrangements. The Tribunal thus selected the correct level of focus for its analysis, the level being dictated by the facts said to constitute supply for consideration. 50 Analysis of the particular obligations on which the Commissioner relied exposes that the Tribunal's reasoning and conclusions were sound. There is nothing equivalent to the circumstances in the Department of Transport case where there was a supply to the Department of the service of transporting an eligible disabled person in return for the payment of the rebate. Nor is the fact that the one consideration may be for more than the one supply (Commissioner of Taxation v Qantas Airways Pty Ltd [2012] HCA 41; (2012) 291 ALR 653 at [19]) a persuasive factor in this case given the difficulty of identifying any supply at all by the dealer to the manufacturer. 51 In respect of the Toyota "fleet rebate" plans the Commissioner noted that in order to obtain the payment the dealer had to comply with the Toyota Fleet Plan and, in particular, had to pass on the minimum discount applicable to every customer. As the Commissioner put it these arrangements involved a number of acts answering the statutory description of a supply by the dealer to Toyota "in particular the act of selling motor vehicles to a particular class of customer in particular ways and at particular prices stipulated by Toyota". In respect of the Toyota "run-out model support" payments the dealer was obliged not to offer arrangements to customers less advantageous than those specified by Toyota in the rules and conditions applying to the "run-out" program. The Commissioner described this as the dealer making the supply to Toyota of "the act of selling specified models of motor vehicles in particular ways and on particular terms stipulated by Toyota". In respect of the Ford "retail target incentive" payments the Commissioner said that the dealer supplied to Ford acts constituting "meetings specific sales targets, reporting sales in ways stipulated by Ford, promoting, marketing and advertising the sale of Ford's products in particular ways and ordering and estimating the requirements of vehicles in the form and on the dates specified by Ford". In respect of the Subaru "wholesale target incentive" payments the Commissioner submitted that the dealer supplied Subaru with services which included "ordering and paying for stock in particular ways stipulated by Subaru, planning vehicle ordering requirements, reducing holdings of aged stock, actively selling off the incoming stock list and assisting Subaru in supply chain management and the forward ordering of vehicles". 52 As the AP Group submitted the effect of the Commissioner's contentions is that there is one supplier (the dealer) and two recipients (the manufacturer and the retail customer) of two different supplies. This does suggest that close consideration must be given to the identification of any supply. Contrary to the Commissioner's submissions the Tribunal did not merely focus on the "essence or sole purpose" of the arrangements (at [82]) but evaluated the whole of the relationship between the dealer and the manufacturer in order to determine whether there was any supply "for" the consideration, being the various payments in issue. The Tribunal concluded that there was "an air of unreality" (at [81]) about the Commissioner's case in that the detailed arrangements between the dealer and the manufacturer reflected a commercial relationship which involved certain foundational aspects (the rule book for the relationship) in respect of which there are numerous acts of "give and take" none of which could practically be characterised as supplies in the relevant sense or supplies for consideration. 53 On analysis, the so-called supplies for consideration identified by the Commissioner are nothing more than the encouragement of an overall business relationship between the manufacturer and the dealer to the mutual benefit of both. The relationship involves a whole raft of obligations from one to the other all, presumably, with the ultimate objective of maximising their respective commercial positions. As the AP Group put it, the overall relationship contemplates a continuing dialogue between wholesaler and retailer in which promises are routinely exchanged, but to characterise this dialogue as involving supply after supply is unrealistic and impractical. To characterise the payment of the incentives intended to encourage the overall relationship to operate efficiently as involving supplies for consideration is equally unpersuasive. A dealer will always wish to sell as many cars as practicable and to move old stock to make way for new stock. So too a dealer will always wish its ordering arrangements to be the most efficient and economically beneficial to it. The manufacturer will have the same objectives. It is this context which underpins the Tribunal's conclusion that the payments are not for the supply of anything by the dealer (at [86]). As the Tribunal said at [86] the dealer (which must be inferred to act in an economically rational manner in the ordinary course) will always want to run the business in this way. The fact that the dealer receives a payment as an incentive when certain thresholds associated with running the business in this way does not mean that the dealer is supplying a service to the manufacturer for consideration. If the incentive payment were not available there is no basis to infer that the dealer would not behave in the same way for free. For these reasons there cannot be said to be any supply for consideration in these arrangements. 54 For these reasons, we do not consider that there is any question of law arising in the appeal which, if answered one way or another, would have the effect of vitiating the Tribunal's decision. We agree with the Tribunal's decisions about each payment If it is necessary to answer the specific questions posed (which, as noted, are not articulated as questions of law although we accept that they include such questions), the answers would be: (1) Yes (2) Yes (3) No (4) No. 55 It follows that the appeal and the cross-appeal should be dismissed, and it is unnecessary to say more about the notice of contention. The circumstances suggest each party should pay its own costs of the appeal and cross-appeal rather than orders being made that the AP Group pay the Commissioner's costs of the appeal and the Commissioner pay the AP Group's costs of the cross-appeal but if any party wishes to be heard on costs it may be done through written submissions within 14 days. I certify that the preceding fifty-five (55) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Edmonds and Jagot.

Associate: Dated: 18 September 2013 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1569 of 2012

JUDGEs: EDMONDS, JAGOT AND BROMBERG JJ DATE: 18 September 2013 PLACE: SYDNEY

BROMBERG J 56 For the reasons given by Edmonds and Jagot JJ, I concur with their conclusion that the appeal should be dismissed. I also agree that the Commissioner's cross-appeal and notice of contention should be dismissed but do so for different reasons. I gratefully adopt (without repeating here) the background facts, relevant statutory provisions and the summary of the Tribunal's reasoning provided in the reasons of Edmonds and Jagot JJ. The abbreviations there utilised are continued. 57 The questions raised by the Commissioner's cross-appeal are concerned with whether the Tribunal erred in rejecting the Commissioner's case that the 'retail target incentive' payments paid by Ford and the 'wholesale target incentive' payments paid by Subaru were consideration for supplies made by AP Group to those manufacturers. Additionally, by its notice of contention, the Commissioner raised related questions in which the Commissioner contended that the Tribunal erred in relation to the 'fleet rebate' and 'run-out model support' payments paid by Toyota to AP Group, by not accepting the Commissioner's case on the additional basis that the payments were consideration for supplies by AP Group to Toyota. 58 The alleged errors of law raised by each of those four issues were agitated by the Commissioner largely on the basis that the Tribunal misunderstood and thus failed to deal with the Commissioner's case and that therefore the Tribunal failed to take into account relevant considerations. The relevant considerations were identified as the undisputed evidence that supported a finding that the payments were consideration for things or acts done by AP Group for the manufacturers. 59 Relying upon the Tribunal's reference at [85] to the AP Group's "acceptance of the obligations or the making of the promises", the Commissioner contended that the Tribunal misunderstood the Commissioner's case. That case was not that the supplies were constituted by the mere "acceptance" of obligations by AP Group but was put on the basis of AP Group "doing specific things in relation to specific programs". 60 Read as a whole, the Tribunal's reasons do not disclose that the Tribunal misunderstood the case put by the Commissioner. At [79] the Tribunal described the "critical question" raised by the Commissioner's first argument as "whether, by performing (or agreeing to perform) the obligations imposed by the Dealer Agreements and the various sales bulletins and incentive flyers, the Applicant made a supply to the manufacturer". At [86], the Tribunal referred to "the performance of the obligations, or the compliance with the manufacturers' various rules and policies". These references suggest that the Tribunal understood that the Commissioner's argument relied upon the performance by AP Group of obligations imposed by both the dealer agreements and the various documents dealing with the specific programs under which the impugned payments were made. 61 Nor do I accept the Commissioner's contention that the Tribunal merely focused on the "essence or sole purpose" of the arrangements or that the Tribunal wrongly distinguished Commissioner of Taxation v Secretary to the Department of Transport (Victoria) (2010) 188 FCR 167 by misconstruing the Commissioner's submissions in relation to the relevant supplies. 62 The Commissioner also contended that the Tribunal asked itself the wrong question. The Commissioner contended that given the breadth of the meaning of supply in s 9-10 of the GST Act, the Tribunal was wrong to conclude that the things or acts AP Group did for the manufacturers did not satisfy the statutory description of a "supply". 63 The things or acts done by the AP Group and the obligations pursuant to which those acts were said to have been performed were generally described by the Commissioner in relation to each category of payment as: (i) For 'fleet rebates' - acts or things done by AP Group for Toyota, in particular the act of selling motor vehicles to a particular class of customer in particular ways and at particular prices stipulated by Toyota. These acts were said by the Commissioner to constitute supplies made in performance of the obligations that AP Group assumed under the Toyota Dealer Agreement and the Toyota Fleet Plan. (ii) For 'run-out model support' payments - acts or things done by AP Group for Toyota, in particular the act of selling specified models of motor vehicles in particular ways and on particular terms stipulated by Toyota, including a term that AP Group was obliged not to offer arrangements to customers less advantageous that those specified by Toyota in the rules and conditions for the 'run-out' program. The Commissioner contended these acts constituted supplies made in performance of the obligations that AP Group assumed under the Toyota Dealer Agreement, the Incentive Programme Rules and Conditions, the Retail Sales Advice Policy, the sales bulletins and, when relevant, the Sales and Marketing Participation Form. (iii) For 'retail target incentive' payments - acts or things done by AP Group with a view to achieving volume growth for Ford, thereby increasing its sales and market share. These acts or things included AP Group meeting specific sales targets, reporting sales in ways stipulated by Ford, promoting, marketing and advertising the sale of Ford's products in particular ways and ordering and estimating the requirements of vehicles in the form and on the date specified by Ford. The Commissioner contended that these acts constituted supplies that were made in performance of the obligations that AP Group assumed under the Ford Dealer Agreement and the 'Drive for Success' dealer reward program. (iv) For 'wholesale target incentive' payments - acts or things done by AP Group with a view to assisting Subaru's supply chain management program, thus contributing to Subaru's effective management of stock levels including the ordering and paying for stock in particular ways stipulated by Subaru, planning vehicle ordering requirements, reducing holdings of aged stock, actively selling off the incoming stock list and assisting Subaru in supply chain management and the forward ordering of vehicles. The Commissioner contended that the supplies were made in the performance of obligations AP Group assumed under the Subaru Satellite Dealer Agreement and, more specifically, the Vehicle Forwarding Ordering System (VFOS) wholesale target program. 64 The definition of supply provided by s 9-10 of the GST Act includes "any form of supply whatsoever", such as the "supply of services" or an "entry into…an obligation…to do anything…". The Commissioner's fundamental point before the Tribunal and on the appeal was that the acts or things done in performance of the obligations that AP Group assumed under the dealer agreements and various program documents was (in each case) a "supply" within the meaning of s 9-5 as defined in s 9-10 of the GST Act. In making its case, the Commissioner did not countenance the proposition that the broad language found in the s 9-10 definition of "supply" ought be read down. 65 The Tribunal perceived there to be "an air of unreality" (at [81]) in an outcome based on a construction that the entry into an obligation to do anything was necessarily a "supply". That was especially so, as the Tribunal saw it, given the broad concept of "consideration" provided by s 9-15 of the GST Act. The Tribunal was driven to conclude that there must be some limit to the intended reach of the concept of "supply". It found a limit in the context of the facts before it. The Tribunal concluded that the AP Group's acceptance (and performance) of the obligations upon which the Commissioner relied were not supplies to the manufacturers because, as the Tribunal said at [85], they were instead: …part of the foundation underpinning the relationships [between AP Group and each of the manufacturers], the background to the bargain the parties have made - in a sense, the rulebook by which the game is to be played. 66 Whilst I accept that the Tribunal was correct to assume that in the relations between a retailer and a wholesaler the performance of some obligations by the retailer may not constitute a "supply", I have difficulty with the criteria adopted by the Tribunal to distinguish between those obligations that are beyond the statutory description and those that are not. The Tribunal's conclusion is based on the proposition that a "supply" does not extend to the entry into and performance of a 'foundational' obligation which underpins a business relationship between a wholesaler and a retailer. However there is no textual support for reading down the meaning of "supply" by reference to 'foundational' obligations. "Unreality" or impracticality may support a reading down, but why the line is to be drawn at 'foundational' obligations is unclear. What constitutes a 'foundational' obligation is also vague and uncertain. If the broad language of s 9-10 is to be read down, a more precise basis for doing so should be identified. 67 A basis for reading down the broad words in the definition of "supply" was referred to by AP Group by reference to the Commissioner's published position in Goods and Services Tax Ruling 2001/6 at [88]-[89]. That construction was not raised or relied upon by the Commissioner and was not the subject of submissions other than the passing reference made to it by AP Group. 68 The construction referred to is based upon the proposition that some obligations taken on by a person who is a recipient of a supply, essentially serve to define or describe the nature of what is supplied to the recipient by the supplier. A simple example is given in GST Ruling 2001/6 at [88] to illustrate the point. Goods supplied by a wholesaler may be supplied on condition that any re-sale by the retailer be confined to a specified geographical area. Such a condition imposes an obligation upon the retailer. However, in terms of the exchange between the wholesaler and the retailer, it is an obligation whose essential character is to define what the retailer receives from the wholesaler. It is principally a right retained by the wholesaler rather than a right conferred upon the wholesaler by the retailer. That, it is suggested, is not the kind of "obligation" contemplated by the statutory definition of "supply". It is not a "supply" by the retailer to the wholesaler because it essentially serves to define the nature of what is being supplied by the wholesaler. 69 The construction has some attraction but, in the absence of full argument, my view about it should be regarded as no more than tentative. Arguably, the construction provides a more justifiable and precise basis for reading down the broad words of the statutory definition. On that construction, a wide range of conditions which regulate the manner in which a retailer may on-sell or otherwise deal with goods or services supplied to it will not of themselves be a "supply". 70 There may of course be some overlap between a 'definitional' obligation and what the Tribunal had in mind as a 'foundational' obligation. The AP Group's submissions sought to justify the Tribunal's approach to 'foundational' obligations by reference to the construction outlined above. However, the asserted justification was unsupported by the Tribunal's reasoning and I do not accept that the Tribunal took that approach. Nevertheless, the analysis that AP Group pointed to served to undermine the broad and unqualified meaning of "supply" for which the Commissioner contended. 71 It is evident then, that whilst I have concerns about the approach to construction adopted by the Tribunal, I do not disagree with the Tribunal's conclusion on any basis contended for by the Commissioner. That circumstance does not provide a basis for upholding the Commissioner's claims for relief. 72 Assuming that it may be wrong on the question of whether there was a "supply", the Tribunal then turned to consider whether, if AP Group did make supplies to the manufacturers, those supplies were nevertheless not taxable supplies because they were not made for consideration. 73 As Kenny and Dodds-Streeton JJ said in Secretary of the Department of Transport (Victoria) at [59]: The terms of s 9-5 show that whether or not there is a taxable supply for the purposes of the provision is to be determined from the perspective of the entity making the supply… 74 Accordingly, the question posed by s 9-5(a) is whether AP Group made the supplies for consideration. The analysis of Edmonds and Jagot JJ as to the proper construction of s 9-5(a) at [32]-[33] above (which I have respectfully adopted) requires that in determining whether the supplies were made for consideration, it is necessary to ask whether AP Group made each relevant supply in order to obtain a payment in connection with the supply. 75 That was not the question which the Tribunal asked at [86] (as reproduced at [23] above). Whilst the Tribunal asked whether a "nexus" existed between the payment made to AP Group and the performance of the obligations by AP Group, for the reasons expressed by Edmonds and Jagot JJ, the Tribunal was not unaware of the "for" requirement in s 9-5(a). However, the question which the Tribunal seems to have asked was whether the payments were made for the activities in which AP Group engaged. In doing so it seems to me that the Tribunal may have adopted the wrong perspective. The Tribunal seems to have concluded that the payments made to AP Group were not for the activities engaged in by AP Group because those activities would have been engaged in anyway as part of the running of AP Group's business. The proper question was whether the supply made by AP Group to the manufacturer was for a prospective payment later received. 76 Conduct which constitutes a "supply" may be conduct which has a range of other characteristics: Commissioner of Taxation v Reliance Carpet Co Pty Ltd (2008) 236 CLR 342 at [28] and [36] (Gleeson CJ, Gummow, Heydon, Crennan and Kiefel JJ). The same conduct may be directed to a number of purposes or objectives or it may provide a service or benefit to more than one person. In that context it is essential to bear in mind that the relevant question is not whether the conduct was for consideration but whether the particular supply which arose from the conduct was for consideration. 77 On the facts of this case, it may be correct to say that the conduct of the AP Group upon which the Commissioner relied, was of mutual benefit to AP Group as well as a manufacturer (although I am not convinced that in each case AP Group would have acted in the same way in the absence of an offer of payment). That a mutually beneficial outcome flowed from the same conduct to both the AP Group and to a manufacturer, does not deny the possibility that insofar as a benefit flowed to a manufacturer, the payment offered by the manufacturer actuated the flow of that benefit. 78 If the supply to a manufacturer was the fortuitous and coincidental result of conduct directed only to providing a benefit to AP Group, then it could not be said the supply to the manufacturer was made by AP Group in order to obtain any payment from the manufacturer. But on the facts of this case, the conduct of AP Group relevant to the 'fleet rebates', 'run-out model support', 'retail target incentive' and 'wholesale target incentive' programs occurred in the knowledge of the existence of those programs, in circumstances where AP Group actively participated in those programs and in the knowledge that the conduct pursued by AP Group may, if specified parameters were satisfied, result in a pre-determined payment from a manufacturer. 79 It may be that the Tribunal did not give proper consideration to those matters. That may well have been because it adopted the wrong perspective. 80 The Commissioner did not challenge the Tribunal's approach on the basis that it addressed the facts from the wrong perspective. The Commissioner's grounds relevantly asserted that the Tribunal erred because it should have found that the payments constituted consideration "because the payments were made" in connection with or in response to AP Groups various activities. The Commissioner's challenge focussed upon why the payments were made, rather than the proper question of whether the supplies were made for the payments. 81 It is for those reasons that I agree that the Commissioner's cross-appeal and notice of contention should be dismissed. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bromberg.